ANGLO American, hit by suppressed platinum prices, muzzled productions across key metals and heightened bottlenecks in Transnet’s rail capacity is considering an impairment for diamond producer De Beers as it aligns its iron ore operations with Transnet’s crippled rail capacity.
The company’s output of nickel increased by 9% during the quarter to the end of December, “reflecting improved operational stability” while steel-making coal production was also 2% higher.
However, a 16% decrease from the Chile copper operation suppressed overall output of the metal by 6% despite higher output from the Quellaveco project in Peru.
With rough diamond output down by 3% for the quarter and primarily due to the planned reduction at Venetia, which is transitioning to underground operations, Anglo American is evaluating an impairment hit from De Beers.
De Beers has been in loss-making across the second half of 2023 as “cyclical lows driven by the prevailing macroeconomic environment” persist.during the quarter, rough diamond production from De Beers was 3% lower at 7.9 million carats amid higher production from Botswana and Namibia which, however, was not enough to offset production declines from Venetia.
“Whilst there has been some improvement coming into 2024, the prospects for economic growth in many major economies remain uncertain and it may take some time for rough diamond demand to fully recover, which has led to the Group currently assessing its carrying value of De Beers,” Anglo American said yesterday
Transnet delays had a profound effect on Anglo American’s Kumba Ion Ore unit, whose headline earnings per share for the 2023 full year to December are, nonetheless, expected to be between R66.55 and R73.63, an increase of between 18% and 31% against the prior comparative year.
Kumba CEO Mpumi Zikalala said the increase in earnings for the period had been attributed to a higher average realised FOB export ore price and the weaker Rand/US Dollar exchange rate. Transnet’s constrained logistics capacity impacted the company during the quarter period to December, said .
“Following the completion of the annual logistics maintenance shutdown by Transnet in October 2023, rail performance challenges continued to place significant pressure on our value chain. Ore railed to Saldanha Bay Port decreased by 19% in Q4 (quarter four) 2023 compared to Q3 2023, resulting in on-mine stockpiles increasing to unsustainable levels,” said Zikalala.
Although Kumba was retaining the operational flexibility to ramp-up iron ore volumes from South Africa just in case the rail performance improve, the company has decided to align its production to Transnet’s reduced rail capacity. This will help it “ensure a balanced” value chain.
Iron ore production is, therefore, expected to remain at 35-37 million tonnes per year over the period 2024 to 2026. Kumba sees unit costs at between $38-$40 (R754) per ton over the three year period, aided by the reconfiguration of its business as well as cost optimisation related to the lower production profile.
"For the full year 2023, Kumba delivered production of 35.7 million tons and sales of 37.2 million tons in line with revised guidance of 35-36 million tons and 36-37 million tons respectively,” the company said.
In the last quarter to December, iron ore prices had started to strengthen on the back of tight market fundamentals, including low port inventories and demand supported by government stimulus announcements and steel exports from China.
In its platinum group metals (PGM) segment, Anglo American suffered an earnings decrease owing lower revenues that emanated from a 35% lowering in realised US$ PGM basket prices compared to 2022.
Headline earnings and headline earnings per share in Anglo American Platinum (Amplats) for the full year period under review are expected to be lower by between 67% and 77% compared to the 12 months ended 31 December 2022.
Wayne McCurrie, wealth and investments analyst at FNB, said the likely 70% fall in earnings for Anglo American Platinum was “normal” given the stage of the cycle.
“(This) should be the bottom of the earnings cycle. Imagine the effect on SARS (SA Revenue Service) revenue: this is one mining company where earnings are down R37bn,” he said.
Headline earnings for the full year are likely to be between R11.1 billion and R16bn while headline earning per share profitability was expected to R42.16 per share and R60.77 per share compared to R185.42 cents per share in 2022.
Massive drops in palladium and rhodium US dollar prices are major contributors to this. Palladium prices were 37% weaker during the year while rhodium prices sagged by 58% lower, respectively.
“A 13% weakening of the ZAR/US$ exchange rate against 2022 partially mitigated the US$ impact on the overall rand basket price. The decrease in revenue as a result of prices was partially offset by a 2% increase in PGM sales volumes compared to the prior period,” Amplats) said.
In addition to the lower PGM prices, sustained inflationary pressures and exchange rate volatility have added pressure, resulting in higher mining and processing costs.